How to make succession planning the New Year’s resolution that actually sticks!
January is the traditional time for making resolutions. And while some goals – losing weight, getting fitter, learning a language – seem to appear with monotonous regularity on our personal ‘to do’ list, at Succession Plus we think business owners could use some of that fresh-start energy to tackle some of the thorny issues around succession planning.
Keeping it in the family
Here in Western Australia we have a proud tradition of family-run businesses. In fact, despite the global move towards the creation of ever-larger corporations, there are still a surprising number of Australian businesses established in the latter part of the 19th century that are owned and operated by descendants of the founders – to the fourth, fifth and even sixth generations.
Family businesses are notoriously difficult to sustain. Often, the founder has used his or her expertise to grow a business from scratch, employing ingenuity to build a successful enterprise. Problems arise when the business has to be spilt to satisfy the divergent interests of the next generation – especially where there are a several potential successors, or, indeed, none.
Planning for the future
In our experience, enduring family businesses share some common approaches which are worth examining.
Perhaps the most important step is to start planning for succession well in advance of handing over the reins. It’s important to think carefully about the direction of the business and to consider how to align the personal, business and financial goals of the key stakeholders. Once you’ve had an open and honest discussion about what everyone involved wants – retirement, management responsibility, shares, buy-out – you’ll be able to make plans that will ensure a positive outcome for all.
Opportunities for expansion
As family businesses get older, the expectations of a widening succession pool can endanger its survival, but, when approached properly, planning for succession can also lead to growth and diversity. Some of the most successful companies look for opportunities for family members to develop new business ideas that utilise the strengths of the parent company. In this way, a garden centre might establish a landscaping or arboriculture arm led by one of the successors, for instance.
Sometimes it happens that several family members don’t want to succeed to the business, preferring to pursue their professional endeavours elsewhere. In this case, much thought has to be given to making plans to finance an asset split. Often, the first port of call is to commission an independent valuation before discussing the funding sources – which may include separating and selling parts of the business or securing a loan.
Bringing outsiders in
Although the temptation may be to keep strategic roles in the family, there can be compelling reasons for bringing in some new blood.
While it’s good practice for family members to acquire broad business, management and leadership skills, companies can be transformed by importing top-level expertise. Every board has a responsibility to its stakeholders; bringing in professionals with a different perspective – and a track record for growth and innovation – can bring fresh energy and creativity to your organisation.
Keeping the discussions going
We know that the businesses most likely to succeed across successive generations are those that keep the lines of communication open. Family businesses fail when resentments and rivalries are allowed to flourish and fester; they prosper with honesty, planning, preparation and empowerment.